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Saturday, December 27, 2014

David Stockman Debunks TARP Profit Claims: The Fed Runs A ‘No Banker Left Behind’ Program

December 26, 2014

By John Morgan at NewsmaxFinance

Washington’s untruths about the Troubled Asset Relief Program
(TARP)’s so-called “success” add up to something worse than the original
taxpayer bailouts of big banks and other corporations, according to
David Stockman, White House budget chief during the Regan
administration.

He noted the Treasury Department recently concluded that the 2008
TARP had actually returned a profit of $15.3 billion, returning $441.7
billion on the $426.4 in taxpayer monies invested to save the likes of
Citigroup, Bank of America, General Motors, American International Group
(AIG) and other pre-meltdown spendthrifts.

“The ‘small profit’, along with most of the so-called ‘recovery’ of
Uncle Sam’s $426 billion initial investment, was ground out of the backs
of America’s savers and depositors; or it was scalped from the massive
financial bubbles the Fed has generated in the Wall Street casino,” Stockman wrote on his Contra Corner blog.

“In short, under an honest monetary regime of market clearing
interest rates, bank balance sheets would be far smaller. Likewise,
deposit costs would be far higher, and opportunities to scalp profits
from the global scramble for yield far less abundant.”

Stockman said the mainstream economics narrative and media coverage
on the Federal Reserve’s ultra-easy money policies is simply
perpetuating a fiction.

That’s because “what lies beneath its ‘extraordinary measures,’ such
as ZIRP [zero interest rate policy], QE [quantitative easing], wealth
effects and the rest of the litany, is a central banking regime that
systematically destroys savers. Period,” he claimed.

Stockman said the central bank’s ZIRP has allowed big banks to profit
while average Americans get squeezed by earning next to nothing on
their savings.

“The policy apparatus of the state has subjected savers to brutal
punishment for one reason alone. Namely, to enable the insolvent big
banks of America to dig their way out of the deep hole they were in at
the time of the financial crisis. By scalping false profits from the
Fed’s regime of financial repression, they have, in fact, been able to
return accounting profits to pre-crisis levels and beyond.”

He noted that ZIRP has enabled banks to carry $10 trillion of
deposits at negative real interest rates, while making money on that
cash, and pay out an average of 0.4 percent on six-month CDs when an
honest payout should be closer to 4.0 percent.

“This has been called the Fed’s ‘No Banker Left Behind’ program and for good reason,” Stockman said.
“But the heart of the matter is this. The Fed and other central banks
of the world have created trillions of fiat credit that is drastically
mispriced and would not even exist in a free market based on honest
savings from current production and legitimate requirements for capital
investment.

“TARP wasn’t ‘repaid’ with a profit. It was simply perpetuated and
morphed into a new form of destructive state subvention and
mal-investment.”

The Center for Economic and Policy Research
(CEPR) was likewise suspicious of the official government line that the
U.S. made a “profit” on its TARP taxpayer loans to corporate America,
and called The New York Times’ coverage of the matter a “children’s
story.”

“Before you start thinking that this is a great idea and we should
give all the government’s money to the Wall Street banks, imagine that
we had given the same money to a different institution, Bernie Madoff’s
investment fund. As we all know, Madoff’s fund was bankrupt at the time
because he was running it as a Ponzi, the new investors paid off the
earlier investors. He hadn’t made a penny on actual investment in
years,” said CEPR on its website.

CEPR said if the government had lent Madoff tens of billions of
dollars at the same low rates it charged Wall Street banks, Madoff
easily could have invested the money and paid off the debt, also. (It
apparently helps when taxpayers are subsidizing your loans.)

“This would have then allowed (former Treasury Secretary) Timothy
Geithner to boast about how we made a profit on the loans to Bernie
Madoff.

“The reality is that the boast of a profit in this context is pretty
damn silly. The question is whether an important public purpose was
served by rescuing the Wall Street banks from their own greed.”